ESCONDIDO: Mall revitalization efforts shifting to anchor stores

Now that Escondido has approved a $56 million renovation plan for Westfield North County mall, Mayor Sam Abed says it's time to persuade the mall's department store anchors to spend roughly $20 million upgrading their buildings inside and out.

The
agreement
with Westfield, which was made final last Wednesday, doesn't include the anchor tenants because they reached separate deals with the city when the mall was being planned in the early 1980s.

But Abed said it would make no sense to leave the anchor stores looking drab and outdated while the rest of the 26-year-old mall is converted into a shiny, sleek
destination.

"Upgrading the anchors is a big part of revitalizing the mall, which is our number one priority," Abed said.

So he recently began discussions with Nordstrom and J.C. Penney about possible renovations, and said that he plans to contact Sears officials soon. The mall's other two anchor sites ---- a Macy's and a defunct Robinsons-May that's being transformed into a three-story Target ---- won't be part of the negotiations because they're controlled by Westfield.

Abed said he was optimistic about quickly reaching agreements with the anchors based on some preliminary conversations, and because it would be in their own self-interest to upgrade and get a lease extension in exchange.

The city agreed to delay expiration of Westfield's lease from 2038 to 2053 in exchange for the $56 million in upgrades to the rest of the mall, and Abed said similar extensions would be available to the anchors for roughly $5 million to $6 million in upgrades each.

"We want them all to be on the same timeline," he said.

Negotiating hurdles

But the city faces different circumstances with each anchor. J.C. Penney just completed an interior upgrade, the Sears chain has been
struggling financially
, and Nordstrom has significant leverage because the upscale store is considered the mall's premier tenant.

Escondido has the only Nordstrom in North County and one of only four in the entire county, with the others at Fashion Valley, University Towne Centre and Horton Plaza malls in San Diego.

City Manager Clay Phillips told the North County Times last month that Nordstrom might be the trickiest negotiation because the city lacks leverage.

"We want Nordstrom to be there," he said. "Everybody knows they are a big player."

Officials from each chain did not return phone calls last week, but Abed said preliminary discussions have been encouraging.

He said Nordstrom officials recently told him they've become more upbeat about the mall because of Target's pending arrival, the recent widening of nearby Interstate 15, and Westfield's
renovation plan
, which includes new restaurants, a remodeled food court and a range of aesthetic upgrades.

In addition, he said Nordstrom officials told him the Escondido store fits well geographically with a discount Nordstrom Rack in San Marcos and another Nordstrom Rack under construction in Carmel Mountain Ranch.

"The majority of their concern was Westfield not keeping the mall up to date," said Abed, referring to worries among city boosters during the recession that Nordstrom might close its Escondido store.

Katie Dickey, chief spokeswoman for Westfield, said last week that her company had begun negotiations with Macy's about similar renovations. And Dickey said Westfield wants to see all the anchors upgraded so that the mall looks and feels equally engaging throughout.

"The dialogue is ongoing," said Dickey, expressing tentative optimism that each anchor would eventually complete upgrades. "It's been our experience that it's a strong encouragement when neighboring businesses are investing in upgrades."

Higher rent?

Escondido could demand the anchor tenants agree to pay higher rents than the so-called "sweetheart" deals they received in 1983 to entice them into a new mall with no track record.

Penney's annual lease is only $10, while Sears and Nordstrom pay $98,000 per year, which is significantly below market rate for the amount of square footage they control.

The company's annual lease payment to the city will increase by nearly 30 percent, from $1.09 million to $1.39 million, by as early as 2016. And the lease will increase $150,000 the third year after the renovations are complete and another $150,000 during the fourth year.

After that, the lease payment will climb annually by either 2.5 percent or the increase in the consumer price index, whichever is lower.

Abed said last week that pegging rent increases for the anchors to the consumer price index was appealing to the city, but he stopped short of saying the city would demand any increases at all.

In a city
staff report
about Westfield's new lease in January, City Attorney Jeff Epp said the rents have been much lower for the anchor stores because they generate enormous sales tax for the city and have helped make the mall viable since it opened.

While department stores have become less of a draw since the 1980s, Epp noted that a consolidation among them may have reduced the city's leverage. The mall opened with six anchors: Nordstrom, Penney's, Sears, The Broadway, Robinsons and May Co.

But through a series of mergers, The Broadway, Robinsons and May Co. are now all part of Macy's, which took over The Broadway site. As a result, the mall was left with only four anchors for six spots.

The original May. Co site will become a Target, and the original Robinsons has been filled by H&M clothing and Forever 21, but there aren't many other department stores that could take over another empty anchor site, city officials said.